I REFER to last Saturday’s reply by the Ministry of Trade and Industry, “Electricity prices: Why HK is cheaper”.

The tiered system I envisage for electricity is not one where the baseline tier is already set to recoup full cost, with a tax artificially imposed on excess consumption, as is the case for water. I mentioned the tiered charge for water to illustrate that differential charging is not new here.

The Hong Kong tiered charging system is a good reference point to crunch the numbers here to reduce bills for moderate household consumption. In Hong Kong, there are six progressive tiers of rates from the first 150 units, charged at baseline rate to the final tier of 1,001 units and above at baseline, plus 12 cents.

Here, the uniform rate for household consumption is 30.45 cents. The average electricity consumption per household varies but overall, it is about 300 units monthly.

Even if the provider needs to recoup the same total revenue, this can be achieved where the baseline consumption rate is significantly below 30.45 cents per unit while consumption in the subsequent tiers is charged at progressively higher rates. If one pegs the unit rates correctly, households consuming moderate quantities of electricity will be better off.

It should not increase prices for average households whose consumption does not exceed the baseline or lower tiers which should be below cost or at cost. Contrary to what the ministry stated, there would be an incentive to consume less so as not to cross to the higher tiers.

Such a system will return the benefits of saving electricity to the consumer through the cross subsidies, due to the differentiation in electricity charges.

A tiered tariff can assure everyone, regardless of household type, of affordable baseline consumption. The well-off are less likely to moderate their consumption and hence will pay for additional electricity at the higher rates.

Electricity is a modern necessity. We should get the pricing structure correct to prevent electricity becoming a heavy burden to households.

Finally, we should explore a mechanism to cushion the spikes in electricity tariff, which inflict sudden anxiety and impact on the cost of living. One possibility is what is done for public transport by way of a fuel equalisation fund, which public transport operators maintain to cushion the impact of volatile fuel prices so as not to pass them on to commuters.